Another Reason To Repeal All Tariffs

Furman, Russ, and Shambaugh report on their study on who pays tariffs (hat tip to Mark Perry).  Their summary:

Tariffs – taxes on imported goods – likely impose a heavier burden on lower-income households, as these households generally spend more on traded goods as a share of expenditure/income and because of the higher level of tariffs placed on some key consumer goods. This column estimates the tariff burden by income group and by family structure using a new dataset constructed by matching of granular data on trade and consumer spending. The findings suggest that tariffs function as a regressive tax that weighs most heavily on women and single parents.

High income folks pay more in tariffs but low income folks pay a greater percentage of their income on tariffs.  That is, tariffs, not surprisingly, turn out to be a regressive tax.  We do not favor eliminating all regressive taxes but tariffs are also arbitrary as Furman et al remind us:

In fact, there is enormous variation in tariffs at the disaggregate level for reasons that sometimes are due to careful targets, but alternatively may favour some groups or products over others for reasons that are not always obvious. For example, for a family doing their back-to-school shopping, backpacks of man-made fibres carry tariffs of 17.6%; ballpoint pens 0.8 cent each plus an additional 5.4%; non-mechanical pencils and crayons about 4.3%; markers 4%; mechanical pencils 6.6%.  The tariff code thus penalises students more for using ballpoint pens and mechanical pencils than markers.

Rather than negotiate with other countries to help them fix their tax codes we should just fix our own tax code by eliminating all tariffs.  Of course, we need to find a tax to replace the $33 billion in tax receipts.  We favor a complete revamping of the tax code along the lines of the Graetz plan.  In addition, we would eliminate the death tax, tariffs, and the gas tax and replace them with a revenue neutral carbon tax.  The carbon tax would be regressive just like the last two but it would help with incentives.

Sidebar: Global warming is complicated.  It is a mixture of good science, bad science, and worse economics.  At this point a small carbon tax seems like a rational idea.  Waiting to do anything more serious seems like an excellent idea.  End Sidebar.

Tariffs are a much better place for action.  We know what is going on with tariffs and taking action is easy in one sense of the word.  Why not do something we know will help low income individuals?

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